Three blockchain firms that collectively capital mobilized about $40 million through unregulated initial coin offerings (ICOs) in 2017 missed their deadlines to repay investors following charges. It delayed due to charges by the United States Securities and Exchange Commission (SEC), the Wall Street Journal believed.
The Wall Street Journal also reported on Nov. 14 that the startups agreed to repay investors or provide more transparency in exchange for lower fines, yet failed not to follow through with this agreement.
The overdue firms
Three startups are mentioned such as Airfox (mobile banking services), Gladius Network LLC (cybersecurity startup) and Paragon Coin (Cannabis blockchain platform).
The original deadline that Airfox and Paragon Coin had to repay investors who bought their tokens is Oct. 16. And the remaining firm is over five months late on providing information to its investors on whether they should ask for refunds.
According to part of the agreement with SEC in November last year, Airfox and Paragon Coin promised to pay a $250,000 fine, in exchange, they would not be accused of fraud and had to file a registration statement, an official document overseen by the SEC that seeks to inform investors of potential risks, trends, and financial performance.
Steve Peikin, a co-director of SEC enforcement, stated that:
“These orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws.”
The third startup did not pay the penalty to the SEC after the settlement and the regulator gave it credit for self-reporting its violations. It also required to submit registration statements, of course.
Both Airfox and Paragon filed the forms, Paragon, however, failed to answer a letter from the SEC requesting on its accounting and shareholder rights. Furthermore, the firm also did not launch any quarterly updates for investors since its tokens registration with the SEC in March.
Besides, Gladius was expected to file the registration statement by May 20 but it says on its website that the deadline was extended until Nov. 18. A lawyer of the company declined to comment after being contacted by the WSJ.
Airfox and Paragon also reportedly missed the deadline, however, Airfox claimed that its date had been extended to Dec 28. The later noted in a statement :
“Airfox has complied with all applicable deadlines, some of which were extended.”
Paragon told on its website that investors seeking refunds have until November 21 to file their claims, but their settlement order set a deadline in July. The company didn’t respond to the WSJ’s request for comment, and neither did an attorney who represented it before the SEC.
SEC’s documents showed that Paragon and Airfox might not enough funds means to repay their ICO investors. For instance, Airfox only has $6.1 million in assets (includes $5.4 in liquid cash) and owes into $15.4 million to its offerings’ participants. While Paragon liabilities worth $14.9 million with its assets at $95,659.
The solution is ineffective
Michael S. Dicke, former SEC enforcement lawyer raised concern that such agreements are not effective solutions:
“I looked at it then and look at it now as impractical because for many projects they spent the money in accordance with what they told purchasers they would spend the money on—to build out the project. […] This kind of remedy really only works well when the issuer can payback.”
In this year, the SEC suspended securities trading of 271 issuers, obtained 31 court-ordered asset freezes and collected more than $4.3 billion in disgorgement and penalties. Telegram company asked the New York Southern District Court to throw out accusations by United States regulators that its cryptocurrency is a security, as reported Nov. 12.
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